Mean-Variance Environmental Investment Optimization of Bulgarian Private Pension Funds
Mean-Variance Environmental Investment Optimization of Bulgarian Private Pension Funds

Summary/Abstract: Pension funds’ investments are increasingly linked to the changes in climate and environmental protection. The integration of environmental, social and governance (ESG) factors into their investment process is still varying in different countries and regions. The limited number of studies on the application of the ESG investment approach by private pension funds in Bulgaria shows that the country lags behind the trends in Europe. Although pension funds do not perceive environmental investments as riskier or less profitable than conventional ones, many of them remain cautious due to the shorter-term financial performance data of green assets. To achieve adequate retirement savings and a high replacement rate saving “more and for longer” is not enough. As far as the topic of portfolio investment performance is on the agenda, one would reasonably ask what the reflection of environmental investments would be on the widely diversified portfolios of pension funds in the country. The present research is dedicated to а mean-variance (MV) portfolio optimization involving a selection of conventional and green assets under different constraints and “shades of green” by using historical data. The empirical results from the portfolio optimizations performed shed light on the questions raised and complement the motivational spectrum “in favour of” or “against” environmental investment.

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